Scale, dressing up and TV financials

Michael Hedges April 27, 2009

Big television operators swamped by huge debt and overwhelmed by lower ad revenues are feeling considerable pain. Pressure, certainly, is on top executives. Last week saw ITVs chief executive Michael Grade and ProSiebenSat.1 Media COO Patrick Tillieux announce their departures.

Michael Grade took on day-to-day executive decisions at ITV temporarily when he joined the UK broadcaster in 2007. Last week he said he’d be stepping back to non-executive chairman by the end of the year. The announcement fueled more speculation of an eventual ownership change.

Patrick Tillieux said he’d be leaving June 30th to take on “other tasks.” He’s been ProSiebenSat.1 COO since the 2007 take over of SBS Broadcasting, where he had been COO and acting CEO. ProSiebenSat.1 CEO Thomas Ebeling will assume Tillieux’ management roles, extending management consolidation. Last summer Guillaume de Posch, then ProSiebenSat.1 CEO, resigned to pursue other interests.

ProSiebenSat.1 Media operates German TV channels ProSieben and Sat.1 plus much of the remains of the SBS Broadcasting radio and television channels scattered across several countries.  Some assets have been sold off, the CMore pay-TV operations in Scandinavia for example. ProSiebenSat.1 Media is a giant, formed by private equity giants Kohlberg, Kravis Roberts (KKR) and Permira at the end of 2006.

That transaction plus the takeover of SBS Broadcasting left ProSiebenSat.1 with massive debt held by KKR and Permira investors. KKR, facing a certain slippage in fortunes, asked its investors to inject €400 million into the closed fund used to finance several European deals including ProSiebenSat.1. KKR has written down ProSiebenSat.1 to zero.

On the Sat.1 side no expense is being spared in recruiting top talent. The channel recently poached show host Johannes B. Kerner from ZDF for €4 million to begin in 2010, according to Sueddeutsche Zeitung. Not long ago Sat.1 CEO Guido Boltensnagged ARD talk show host Sabine Christiansen. Sat.1 is already spending €75 million for Champions league football and UEFA Cup rights.

Big ticket talent hunts are not uncommon in highly competitive German TV but escalating costs during the economic downturn, impacting ProSiebenSat.1 significantly, has raised the suggestion that “dressing up for sale” is at the epicenter. Some German media watchers have their eye, again if not always, on Alex Springer.

As always most media watchers and all stock traders look toward giant white knights riding in to scoop up media companies in distress. When Michael Grade announced his departure from ITV all the usual suspects were named: Mediaset, Disney, RTL, NBC Universal. ProSiebenSat.1 could be broken up but that would require multiple buyers and access to huge amounts of liquid capital. ITV can’t be broken up, presumably, without permission from HRM The Queen.

Enter Clive Hollick. A tantalizing tid-bit, the Independent (UK) (April 26) suggests Lord Hollick might be interested in taking the chief executive job at ITV. He does have significant broadcasting and finance background. It was Lord Hollick who engineered the ProSiebenSat.1 deal, working for KKR and he once ran ITV franchises. He has recently reduced his relationship with KKR from managing partner to advisor.

There is a certain stagnation within European commercial broadcasting. With economic uncertainty underlying all decisions, further consolidation is the conventional wisdom. To the detriment of owners and operators – not to forget advertisers and viewers – Europe has too few really major owners and operators of the Bertelsmann/RTL, NBC Universal or Disney scale. Needless to say, a deal involving ITV and ProSiebenSat would radically change the European television landscape.